Saturday, October 23, 2010

A Professor of Economics Reviews Phillipson's Adam Smith - Poorly

Antoin E. Murphy, an associate professor of economics at Trinity College Dublin and author of The Genesis of Macroeconomics, critically reviews for the Irish Times Philip Nicholson’s, Adam Smith: An Enlightened Life, Allen Lane.

Professor Murphy writes that:

“It is consistent with Scottish academia’s quest to centre Smith, and his great friend David Hume, at the centre of a Scottish Enlightenment, a type of intellectual counterpart to the great French Enlightenment. There is … a need to question this approach, because it tends to underplay the role of the French Enlightenment in the development of Smith’s ideas as well as over emphasising the enlightenment element of Smith’s ideas.

Comment

I detect a somewhat caustic Celtic umbrage in Murphy’s take on Adam Smith (who was tutored by the great Ulster Irish philosopher, Francis Hutcheson, at Glasgow University) by belittling Adam Smith’s originality in synthesizing the best of the work of both predecessors and contemporaries and his original writings on the evolution of European societies from hunter-gathering to shepherding, agriculture and through ‘at last’ to commerce (see his Lectures on Jurisprudence, ([1762-3] 1978; delivered continuously since 1751 in Edinburgh and Glasgow to 1764 until he resigned in January 1764). Long before he met with the French Physiocrats, Smith from his non-teological historical approach had set out the basic and decisive trends in the social evolution of society, including the dynamic effects of the division of labour and much else in Wealth Of Nations.

He used many sources for his economic analysis, including from the mercantile political economists (with whom he profoundly disagreed, e.g., Sir James Steuart, 1767) and from Richard Cantillon, whose Essai was circulating from 1734 in French, which Smith could read, though his spoken French was ‘execrable’. He also much admired Turgot and Quesnay. But he did not take his economics from the Physiocrats, whose main error of lauding the surplus created from agriculture and downplaying the productivity of manufacturing as ‘sterile’, he had the courage to state his disagreement.

Ironically, the ‘laissez-faire’ (for merchants and manufacturers’) of which he had his suspicions, as Wealth Of Nations reminds us, came within a few decades of his death in 1790, to be credited to, and identified with, him, whereas he had made a quite different case for a commercial society based on markets where possible and state-funded provision where necessary.

Murphy is both absolutely right to assert: that “Wealth of Nations … has been used by generations of economists to justify the role of a laissez-faire approach to market-driven economic activity” and absolutely wrong to imply that this attribution to Smith by ‘generations of economists’ was ever justified. It was seized upon by 19th-century economists, who offered it to owners of mills and mines, and their sort, as justification against legislation detrimental to their self-perceived interests.

Murphy compounds his misleading (because incomplete) attributions to Wealth Of Nations with three statements that “It identifies the role of self-interest as a catalyst to human behaviour, uses the metaphor of the “invisible hand” to show how markets if left to themselves can provide an overall economic harmony and provides a strong indictment of most types of government intervention in the economy”.

Self-interest is undoubtedly of importance in Smith’s assessment of human behaviour, but Wealth Of Nations must be read along with Moral Sentiments. Self-interest to Smith was always mediated by the social context and 'mirror' of society. Unmitigated self-interest without its acceptability by those it affects was never part of Smith’s ideas. It was always subject to the approval of the impartial spectator, to the ‘mercenary exchange of good offices according to an agreed valuation’ (TMS, 86), and to the oft-missed meaning of Smith’s “butcher, brewer, baker” example. When in pursuit of our dinner his advice was to address, not their ‘humanity’ but their ‘self-love’ and not to ‘talk of our own necessities but of their advantages’. By each of us addressing the self interests of others, we can achieve our own self-interest, albeit with perhaps having to ‘lower’ our passions for what we want, from others. ‘Society and conversations’ play an important role in ‘restoring the mind to its tranquility’ when it is disturbed by failing to get what we want. In other word by bargaining in which both party's gain ('Give me that which I want, and you shall have this which you want").

As for the ‘invisible hand’, regular readers of Lost Legacy will know that Smith never applied the metaphor “to show how markets if left to themselves can provide an overall economic harmony” and neither was it about “indictment of most types of government intervention in the economy.” These too are pure 20th-century inventions, not least by Paul Samuelson (Economics: an introductory analysis, 1948, p 46). The meaning to Smith of the invisible hand metaphor (see many posts here) had no such grandeur. They were restricted to those feudal landlords, under the great ‘deception’ of their ‘wealth and greatness’ who were compelled by necessity to feed their slaves and serfs because they could not do without them, and to some, but not all, owners of investible funds, who were more risk averse than others, who invested their funds within their sight locally, rather than invest them abroad, and consequently without knowing or intending it they added to the quantity of domestic investment and employment and, therefore, to total domestic investment and employment (the whole is the sum of its parts). This says nothing about providing an “overall economic harmony”. For that, many other conditions would need to be established, none of which existed neither under feudalism nor 18th-century Britain and Ireland and Smith did not raise or discuss them.

I could go on to the "Buccleugh" connection, but will leave with one other remark on the inaccurate and wholly ungracious slight against Smith (especially from an academic). Professor Murphy writes:

“Aside from a couple of years as an academic at the start of his career Adam Smith never worked.”

Surely this is a mistake? To review Nicholas Philipson’s, “Adam Smith An Enlightened Life”, you have to read it first in order to review it? Adam Smith taught a class each Friday in Edinburgh to a ‘respectable auditory’ from 1748-51 for £100 per year. He was then appointed as a Professor of Logic at Glasgow University (1751-52) and after his appointment to the Chair of Moral Philosophy (1752-1764). His teaching hours are reported from Glasgow University archives as from 7.30am to late afternoon, 5 - days a week. Where Murphy’s “two years” came from, I have no idea. Nor where the absurd implication arising from Murphy’s statement that Smith was “ appointed commissioner of customs, a position he held for the last 12 years of his life”, as if this was on a par with a sinecure. Murphy adds, gratuitously: “Businessmen … may question the bona fides of a writer whose income derived from acting as a paid family retainer and a tax inspector.”

On his appointment as a ‘Scottish Commissioner of Customs and the Salt tax’ Smith returned Buccleugh’s bond for life, but the Duke refused to cancel it. Smith gave most of the money he received away to indigent petitioners. He died relatively poor for a man receiving £900 a year. Secondly, as a ‘tax inspector’ (which is like describing Professor Murphy of Trinity College, Dublin, one of Europe’s finest universities, as a ‘school teacher’), Smith, as shown in the archived papers of the customs house, worked four-days a week, his signature is on 90 per cent of the official documents, and his daily attendance noted in the registers, which left him precious little time to continue his work as a writer on moral philosophy and political economy. He worked there until a few months before he died in 1790. He regularly produced new editions of his two books, until his death, with the 6th editions of both books appearing in 1789 and 1790, respectively.